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Gold retreats from record high, bullish outlook remains intact | FXStreet

Gold (XAU/USD) retreats slightly from a fresh all-time peak touched during the Asian session on Thursday, though it retains its positive bias for the fifth straight day amid a supportive fundamental backdrop. Worries about economic risks stemming from the US government shutdown, US-China trade war, and rising geopolitical tensions continue to underpin demand for the safe-haven bullion. Apart from this, dovish Federal Reserve (Fed) expectations further contribute to limiting the downside for the non-yielding yellow metal.

In fact, traders now seem to have nearly fully priced in the possibility that the US central bank will lower borrowing costs two more times this year. The outlook drags the US Dollar (USD) to an over one-week low and backs the case for a further near-term appreciating move for the Gold. The market focus now shifts to speeches from influential FOMC members, which could drive the USD and the XAU/USD pair. Nevertheless, the fundamental backdrop suggests that the path of least resistance for the commodity is to the upside.

Daily Digest Market Movers: Gold pauses bullish run as bulls opt to take some profits off the table

  • The partial federal government shutdown has extended into a third week, with no resolution in sight. The vote on the Republican-backed stopgap funding bill to reopen the government fell short of the votes needed for passage in the Senate for the ninth time on Wednesday.
  • Investors seem worried that a prolonged US government closure would affect the economic performance. A Treasury official said that the shutdown may cost the US economy $15 billion a week in lost output, correcting an earlier statement from Treasury Secretary Scott Bessent.
  • U.S.-China trade tensions escalated further after both sides imposed tit-for-tat port fees this week. Adding to this, US President Donald Trump said that he was considering terminating the cooking oil trade with China in retaliation to the latter’s refusal to purchase American soybeans.
  • Trump said that he saw the US as locked in an all-out trade war with China. However, US Treasury Secretary Scott Bessent proposed a pause of import duties on Chinese goods for longer than three months if China halts its plan for strict export controls on rare-earth elements.
  • On the geopolitical front, US Defense Secretary Pete Hegseth warned Russia of possible costs for its continued aggression if the war in Ukraine does not come to an end. Moreover, Trump had said that he is considering providing Ukraine with longer-range Tomahawk cruise missiles.
  • US Federal Reserve Chair Jerome Powell struck a dovish tone on Tuesday, saying that the labor market remained mired in its low-hiring, low-firing doldrums through September. This reaffirms market bets for a 25-basis-point Fed rate cut at each of the October and December meetings.
  • The US Dollar prolongs its downtrend for the third straight day and drops to an over one-week low during the Asian session on Thursday. This contributes to an extension of the recent record-setting run in the Gold price and backs the case for a further near-term appreciating move.
  • In the absence of any major market-moving economic releases, speeches from a slew of influential FOMC members will be scrutinized for rate-cut cues. This will play a key role in driving the USD demand and providing some meaningful impetus to the non-yielding yellow metal.

Gold corrective pullbacks could be seen as buying opportunity amid constructive setup

The XAU/USD pair has been trending higher along an upward-sloping trend line over the past month or so. Furthermore, the overnight sustained break and acceptance above the $4,200 round figure could be seen as a fresh trigger for bulls. However, an extremely overbought daily Relative Strength Index (RSI) warrants caution before positioning for a further appreciating move.

Meanwhile, any corrective pullback could attract some buyers near the $4,200 mark, which, in turn, should limit the downside for the Gold near the $4,180-4,175 region. A convincing break below the latter, however, might prompt some technical selling and drag the commodity to the $4,135-4,135 intermediate support en route to the $4,100 mark. The next relevant support is pegged near the $4,060-4,055 region, which, if broken decisively, could be seen as the first sign that the XAU/USD pair has topped out in the near term.

Fed FAQs

Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates.
When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money.
When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.

The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions.
The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.

In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system.
It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.

Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.